Selling to Avoid Litigation

Selling to avoid litigation is never a good strategic path to take. This tactic is used to depress the valuation making the target company an attractive candidate. However, it’s similar to a forced marriage. I’ve been involved with a few companies who have considered this route. In one case, the company was attempting to avoid a third party lawsuit. After the company changed investor hands, the executives were targeted with the cases which caused much distraction throughout the company and eventually ended with them leaving the company. Unfortunately for the buyers, the company lost market share during this period and took several years to regain traction. When a company approaches another company with this tactic, they should expect to have high attrition starting from the executive team and loose much of the expertise. 

Corporate culture and the fit with the buyer’s culture is one of the most important elements to consider in an acquisition. With the litigation approach, the corporate culture will surely change to one of discontent before the sale can be finalized. This is what happened in the other case I was involved with. Once the company was able to show the other company the cultural change due to the lawsuit, they discontinued their pursuit.

If the company is a great fit to increase the buyer’s market or expand their product lines, or if the seller can improve strategically through another owner, then begin an acquisition dialog. If the valued employees can be retained and the corporate culture remains a fit, then move forward with striking a deal.  Even if a company wants to take out a competitor through a depressed price acquisition, the time and cost rarely justifies this approach.